The world leader in ophthalmic products had previously set a goal of reaching a 17 percent operating margin by 2005. In spite of several negative factors, such as the weakness of the dollar, Essilor managed to raise its operating profit by 3.0 percent in the 1st half of 2003, taking the group's operating margin up to 17.7 percent, or 1.9 percentage points above the level of one year ago. The management cautions that it will not be able to perform as strongly in the 2nd half, but the margin for the full year will be above the previously forecast level of 16 percent and 2004 should also end up ahead of budget.

As previously reported, Essilor's total revenues declined in the 6-month period by 7.6 percent to €1,031.2 million, but its continuing operations grew by 2.3 percent in constant currencies. If Essilor had reported in US dollars, like SOLA International and other competitors, it would have announced increases of 13 percent in revenues and 26 percent in operating income, scoring much better than them.

Sales were actually flat overall in terms of volume, but Transitions photochromic lenses enjoyed double-digit growth, contributing very significantly to the rise in operating income. Polycarbonate and high-index lenses, progressive lenses, anti-reflective coatings and other value-added products grew strongly as well. Gross margins rose to 62 percent, but they should decline slightly over the balance of the year. In the 1st half, the enhanced product mix was reflected in the operating margins along with sustained productivity gains and tight control over operating costs.

While Europe remains the most profitable region for the group, the reorganization of its US operations contributed strongly to the higher results. Excluding the currency effect, operating income would have risen by 15 percent. Net income improved by 3.1 percent to €102.8 million, or a full 10 percent of sales, thanks in part to the declining interest rates.

Acquisitions worth €110 million in the 1st half will generate annualized additional sales of about €155 million, including €54 million for Rupp + Hubrach in Germany and €40 million for Essilor's share in its new joint venture in Korea. Essilor is planning other acquisitions in the 2nd half and is looking at similar organic growth in the period as in the 1st half. Volumes should increase slightly, especially in North America where its sales were down 1.2 percent on a comparable basis. Essilor enjoyed 5.1 percent organic growth in Europe and 6.9 percent in the rest of the world, but with a decline in Japan and increases in Australia, New Zealand, India, Brazil and Argentina.

Acquisitions and other investments caused Essilor's debt-equity ratio to rise to a still very comfortable level of 19 percent from 13 percent at the end of last year. Earlier this month, Essilor announced the takeover of 3 more prescription labs in North America. One is Omni Optical Lab of Beaumont, Texas, formerly owned by Consolidated Vision Group, parent company of the America's Best chain. Omni had sales of $11 million in 6 southern US states last year. The two other labs acquired by Essilor are located in Canada and they have combined sales of 2.5 million Canadian dollars. They are Optique de l'Estrie of Sherbrooke, Québec and OPSG of London, Ontario.